Ube Industries, Ltd. Business Information, Profile, and History

Company Perspectives:

UBE's corporate vision for the 21st century can be summarized in the phrase: 'Working with science to create a future that supports comfortable lifestyles.' This represents UBE's commitment to creating a comfortable society in the future, by pursuing diversified businesses and producing a wide variety of products. UBE ensures that its activities serve the Earth's environment; for industrial and social infrastructure; for health and life; for the automobile society; for daily living; and for the local community. And all and each of those activities are converged on the ultimate target: 'creating better lifestyles.'

History of Ube Industries, Ltd.

Ube Industries, Ltd. is one of the largest chemical companies in Japan. Once devoted primarily to the mining and industrial applications of coal, Ube converted itself into a diversified chemical concern in the 1960s, as coal's importance as a raw material declined. Just over 40 percent of net sales are derived from the company's chemicals and plastics group, which manufactures petrochemicals, nylon resins, pharmaceuticals, industrial chemicals, and other products. Ube is the world's third largest producer of caprolactam, a raw material used in the manufacture of nylon. A little more than 38 percent of sales come from the construction materials group, whose products include cement, ready-mixed concrete, and building materials. Research and development, marketing, and distribution activities connected with cement are handled through joint ventures with Mitsubishi Materials Corporation. Key products for the machinery and metal products group, which generates 16 percent of net sales, include die-casting machines, injection-molding machines, and aluminum wheels for automobiles. Ube continues to be involved in the coal industry, with additional activities in dielectric ceramics, electric power, and medical equipment.

Origins in Coal and Related Industries

Ube Industries was formed in 1942 when four companies located in and around Ube City in Yamaguchi Prefecture merged under the impetus of a government order. The oldest of these was the Okinoyama Coal Mine, which was founded in 1897 by Yusaku Watanabe. Watanabe was noteworthy for his belief, particularly farsighted at the time, that coal was not just a fuel but a potential source of industrial raw materials. He also believed that the health of his company was inextricably linked to the overall development of the Ube area, a philosophy that the company adopted for the long term.

The second of the four companies to be founded was the Ube Shinkawa Iron Works, which was established in 1914 and manufactured coal-mining machinery. Ube Cement Production, Ltd., which used as its primary raw material limestone found near the Okinoyama mine, was founded in 1921. Lastly, Ube Nitrogen Industry, Ltd. was established in 1933, when the Japanese nitrogen fixation industry was still in its infancy. The company started out synthesizing ammonia and sulfuric acid from coal, and in 1936 it began producing nitric acid and distilling gasoline from the low-temperature carbonization of coal.

The four companies were clearly interdependent. In 1944 Ube Industries added to its position as one of Japan's leading coal-mining concerns by acquiring Nippon Kogyo's anthracite mine at Sanyo. The branch of the company's operations to be most affected by World War II was the nitrogen fixation plant. Ammonia, a major ingredient in both fertilizers and explosives, was a strategically important chemical, and the Ube plant was the nation's fourth largest producer. Demand for its products ran high during the course of the war, and its importance made it a likely target for U.S. bombers. Just after midnight on July 2, 1945, 100 B-29s from the 20th Air Force destroyed the Ube nitrogen plant almost completely; it was not rebuilt until after the war.

Rebuilding after Japan's defeat was not the only challenge that faced Ube Industries in the postwar years. The coal-mining industry began dying a slow death as crude oil gradually replaced coal as the nation's principal source of energy and the chemical industry's main raw material. For Ube, still heavily reliant on its coal operations, it meant diversification or dying along with the coal trade. In 1955 the company bolstered its cement production capacity by opening the Isa Cement Factory at Mine City, just outside Ube City. It also branched into producing urea and caprolactam, raw materials from which nylon is made, at a new plant in Ube City.

Diversifying in the 1960s and 1970s

In 1958 coal still accounted for 30 percent of the company's sales. In 1960, however, Ube began in earnest a 15-year process of phasing coal out of its operations, when it started using oil as its main source of raw materials. From there, it entered the burgeoning field of petrochemicals, beginning with plastics. In 1964 the company began producing low-density polyethylene at a new plant in Chiba Prefecture. It also added to its cement business by opening a factory at Kanda in Fukuoka Prefecture. Over the next ten years, it would invest roughly ¥200 billion in weaning itself from its traditional reliance on coal. Half of this sum would go into chemical and petrochemical production, and one-third into cement production.

This process of diversification and divestiture came to a head in the late 1960s and early 1970s. In 1967 Ube marked the 70th birthday of the Okinoyama mine by closing it down, cutting its oldest link with its corporate past. It also built a new chemical plant at Sakai in Osaka Prefecture. The next year, it added a polypropylene plant to the Sakai facility. In 1970 the company shut down its last remaining major source of coal, the Sanyo anthracite mine. In 1971 it added a synthetic-rubber factory to its plant at Chiba. Ube's sales composition figures for 1972 show that coal had disappeared entirely as a source of revenue; cement accounted for 46 percent of sales, fertilizers and caprolactam for 29.9 percent, machinery for 12.1 percent, and petrochemical products for 12 percent. The company had become Japan's fourth largest chemical concern, and its caprolactam output accounted for ten percent of the world's supply.

Ube reshaped itself into a fully diversified chemical concern during these years, and it did so organically, suggesting that it had not forgotten the interdependence that had made the merger between its four original companies so logical. Not only did it own the means of manufacture; it controlled the raw materials and the means of transportation and distribution as well. For instance, its cement plant at Isa took limestone mined from a nearby quarry, processed it, and sent the clinkers to Ube City, where they were turned into cement using kilns made by Ube's machinery subsidiary. The finished product was then distributed using Ube's own cement carriers, which were constructed by other Ube subsidiaries, Kasado Dockyard and Ube Dockyard, the carriers using engines made by Ube Machinery Works. Similar interrelationships marked the company's other manufacturing operations as well. In 1974 Ube built a 30-kilometer industrial highway between Mine City and Ube City. The company added a 1,020-meter bridge spanning Ube City's harbor to the highway in 1982. The Ube-Mine Industrial Highway cost ¥15 billion, but increased the efficiency of Ube's transportation operations.

Whatever pride Ube took in its busy journey from coal mine to conglomerate must have been short-lived, however. The oil price shocks of the 1970s plunged the Japanese chemical industry into a severe depression. Its primary raw material, once cheap and plentiful, now became scarce and prohibitively expensive. Ube fared no better than its competitors; sales fell off and profits dropped by nearly half just between 1974 and 1975. Coal once again became a viable raw material for Japanese chemical companies, and Ube was at least fortunate in that it had not disposed of all of its coal storage and processing facilities. It did not reopen the Okinoyama and Sanyo mines, however. Instead, it began importing coal from Australia and, later, the United States.

A slump in business naturally resulted in an industry-wide excess in production capacity. Despite general overcapacity in cement production, Ube acquired a 46 percent interest, later expanding it to a majority stake, in Okinawa-based Ryukyu Cement from Kaiser Cement and Gypsum, a subsidiary of U.S. conglomerate Kaiser Industries, for $7 million in 1976. In 1979 the Ministry of International Trade and Industry ordered Ube to shut down its urea plant at Ube City because of industry-wide overcapacity for that chemical.

Business from overseas helped fill the breach caused by difficulties at home. In 1978 Ube established a sales subsidiary in the United States, Ube America. It also received an order to build an ammonia plant in China, which it filled as a partner in a joint venture with the chemical company Marubeni. The plant used a heavy residual gasification process invented by Texaco. In 1982, Ube received a contract to build a cement plant in the United Arab Emirates for a local company, Ajman Cement.

Joint Ventures During the 1980s and 1990s

The 1980s and 1990s were marked by a number of joint ventures for Ube, many of them with foreign companies and involving some kind of technical cooperation--technological innovation was an area in which the Japanese chemical industry had traditionally been weak. Its alliances with domestic rivals were often formed for the sake of diversification, a useful strategy in an industry just pulling out of a severe slump. In 1984 Ube joined with Marubeni and Massachusetts-based Wormser and formed Ube Wormser to produce and market Wormser fluidized-bed combusters in Japan. It also formed UM Technopolymer with Mitsubishi Petroleum, and Chiba Riverment and Cement with Kawasaki Steel. Ube entered the pharmaceutical field that year when it joined with Takeda Chemical to produce and market vitamin supplements.

In 1986 Ube and Marubeni tried to tap into the U.S. automotive plastics market when they set up ATC Inc., a joint venture to produce polypropylene compounds for bumpers and dashboards. ATC was 60 percent-owned by Ube, and based in Nashville, Tennessee, near the proposed site for General Motors' Saturn subcompact car plant. Ube made a significant move toward future diversification that year when it built a new research facility in Ube City, to develop new biotechnical, electronic-material, pharmaceutical, agricultural-chemical, biochemical, and ceramics technologies. A further move into the supply of automotive parts came in 1989 when Ube established A-Mold Corp. as a manufacturer of aluminum wheels.

More joint ventures marked the end of the decade, as well. In 1989 Ube and Finnish chemical company Kemira formed Kemira-Ube to manufacture hydrogen peroxide at an Ube plant in Ube City using a process developed by Kemira. Ube was to use half of the hydrogen peroxide to be produced to manufacture nylon and other products, and the other half was targeted for sale on the Japanese market. Ube also entered into a joint venture with the Japanese drug company Sankyo, in which drugs developed by Ube would be taken to clinical trials, produced, and then marketed by Sankyo. In 1990 Ube and Swiss chemical company Ems-Chemi formed UBE-EMS Yugen Kaisha to manufacture lactam, a base material used in certain kinds of plastics. Ube also entered into a joint venture with Rexene, a Dallas-based chemical company, to manufacture amorphous poly-alpha-olefin--a substance used in adhesives--in Japan using Rexene technology, and market it in the Far East and Pacific Rim.

After expanding rapidly in the heady bubble years of the late 1980s, Ube was saddled with overcapacity problems in many of its operations in the 1990s. The pronounced economic difficulties that beset Japan throughout the decade led Ube to restructure its operations, including a workforce reduction of 950 announced in March 1994; to pursue additional joint ventures; and to increasingly move production out of Japan to counter the effects of the strong yen. In the latter area, key moves were made in the production of caprolactam. In August 1993 Ube entered into an agreement with Thai Petrochemical Industry Co. and Marubeni to form Thai Caprolactam Public Co., Ltd., a joint venture charged with building a caprolactam plant in Thailand; production at the new plant began in the spring of 1997. In December 1993 Ube took a 30 percent stake in Productos Quimicos del Mediterraneo, S.A. (PQM), a producer of caprolactam based in Spain that was a subsidiary of British Petroleum Co. Ube gained full control of PQM during 1994. Around this same time, Ube, Thai Petrochemical, and Nissho Iwai Corporation formed a joint venture called Ube Nylon (Thailand) Ltd. to build a plant in Thailand for the production of nylon 6, a widely used nylon compound synthesized from caprolactam. These moves gave Ube a three-pronged global structure for the production of caprolactam and nylon, with factories in Japan, Europe, and Southeast Asia. They also solidified the company's position as the world's third largest producer of caprolactam. A third area of overseas expansion for Ube's chemical operations was that of synthetic rubber, and in December 1995 Ube once again joined with Thai Petrochemical and other partners to form a manufacturing joint venture; this latest start-up was called Thai Synthetic Rubber Co., Ltd., and it began full-scale production of synthetic rubber for marketing throughout Southeast Asia in January 1998.

Ube also created ventures to manufacture products in China. In early 1995 the company joined with Sumitomo Corporation and firms in Hong Kong and China to establish a joint venture concentrating on the manufacture of cement. With the steady rise of the yen, Ube reached a decision to stop making magnesium in Japan, and in 1995 formed Nanjing Ube Magnesium Co., Ltd. to begin producing magnesium in China. This was yet another joint venture, with the partners being China-based Nanjing Huahong Magnesium Industry Corp. and two Japanese trading firms, Kanematsu Corporation and Mitsui & Co., Ltd. Another development in 1995 was the merger of the polypropylene businesses of Ube and Mitsui Petrochemical Industries into a joint venture called Grand Polymer Co., Ltd., which began its existence as the number three producer of polypropylene in Japan.

Meantime, the company set up another manufacturing subsidiary in the United States in 1992. Based in Ann Arbor, Michigan, Ube Machinery, Inc. began operations during the 1996 fiscal year. The firm specialized in the assembly of injection-molding and die-casting machines and became an integral part of Ube's machinery and engineering unit. In the pharmaceutical area, Ube completed construction of its first bulk pharmaceutical production plant, which was located in Ube City, in 1995. Initially, the company focused on making pharmaceuticals for major drugmakers on a contract basis. By early 1997, however, Ube had plans to begin making an antiallergenic agent and an antihypertensive agent of its own devising. Needing additional production capacity, it completed construction of a second pharmaceutical plant at Ube City in early 1998. In June 1997 Ube became the first corporation in Japan to offer a stock option plan to its management and senior employees.

The cement industry in Japan remained particularly sluggish in the late 1990s. Although Ube had been able to improve the performance of its cement operations through restructuring and facility upgrades, the outlook still appeared bleak. In December 1997, therefore, Ube entered into an agreement with Mitsubishi Materials Corporation to form a joint venture, Ube-Mitsubishi Cement, to merge the cement-related marketing and logistics operations of the two firms. The new venture started off as the number two cement company in Japan in terms of market share.

Throughout its busy years of dealmaking in the 1990s, Ube was struggling to contain the inflated load of debt it had been saddled with since the collapse of the 1980s economic bubble. Compounding the company's difficulties was the fall of the Japanese economy into recession in the late 1990s coupled with the financial crisis that erupted in east Asia, with the downturn in Thailand of particular concern given Ube's significant investments there. Ube's difficulties were plainly evident in the results for the 1999 fiscal year, when net sales fell 14 percent and net income dropped 33 percent. To attempt to reverse its fortunes, Ube launched 21-UBE, a three-year management plan, in April 1999. The company's operations were organized into five operating segments: Chemicals & Plastics, Construction Materials, Machinery & Metal Products, Coal, and Corporate Research & Development (one year later the Coal segment was combined with some other operations to form a new segment called Energy & Environment). Each of these segments were to be run in a quasi-independent manner, with each responsible for achieving clear-cut goals and objectives. Within these segments, those operations that were unable to achieve or sustain a sufficient level of profitability were to be slated for divestment or closure. Previously, Ube had tolerated lossmaking operations under an emphasis on strength through diversification. Among the financial goals of 21-UBE was the reducing of interest-bearing debt from ¥609.1 billion to less than ¥500 billion and an increase in pretax profit from ¥2.97 billion to ¥33 billion.

While adopting this more modern, bottom-line oriented management style, Ube Industries also needed to determine whether, in order to achieve its goals, it could continue its policy of promoting the economic and social well-being of its home base. Ube had a longstanding commitment to a cluster of small cities on the southern tip of Honshu, which gave it a distinctly provincial air. Fully 70 percent of its employees and 80 percent of its capital spending were concentrated in this area. True to founder Yusaku Watanabe's vision of the inseparable relationship between the company and the community that surrounds it, Ube Industries had over the course of its history embarked on long-term development projects for the Ube area that included building new schools, hospitals, and high-tech research facilities, and expanding Yamaguchi-Ube Airport to accommodate direct flights to major domestic and international destinations. Ube subsidiaries had also operated golf courses, hotels, and a television station in the area. This commitment to a local community, whatever its overall merits, ran counter to the globalization philosophy that dominated early 21st-century business culture; as Sojiro Kita noted in Nikkei Weekly, Ube would perhaps be forced to sever its deep geographical bonds in the name of shareholder value enhancement, the dominant business tenet at the turn of the millennium.

Principal Subsidiaries: Ube Film, Ltd.; Ube Cycon, Ltd.; ATC Inc. (U.S.A.); Meiwa Plastic Industries, Ltd.; Ube Ammonia Industry, Ltd.; Ems-Ube, Ltd.; Productos Quimicos del Mediterraneo, S.A. (Spain); Ube Agri-Materials, Ltd.; Ube America Inc. (U.S.A.); Ube Electronics, Ltd.; Ube Shipping & Logistics, Ltd.; Kanto Ube Concrete Co., Ltd.; Daikyo Kigyo Co., Ltd.; Hagimori Industries, Ltd.; Ube Board Co., Ltd.; Ube Material Industries, Ltd.; Yamaishi Metal Co., Ltd.; Ube Machinery Corporation, Ltd.; Ube Techno Eng. Co., Ltd.; Ube Steel Co., Ltd.; Shin Kasado Dockyard Co., Ltd.; Fukushima, Ltd.; A-Mold Corp. (U.S.A.); A-Mold Sales International L.L.C. (U.S.A.); Ube Machinery Inc. (U.S.A.); U-Mold Co., Ltd.; Ube C & A Co., Ltd.; Ube Realty & Development Co., Ltd.; Ube International (U.S.A.), Inc.; Ube Corp. USA Inc.

Principal Operating Units: Chemicals & Plastics; Construction Materials; Machinery & Metal Products; Energy & Environment; Corporate Research & Development.

Principal Competitors: Asahi Chemical Industry Co., Ltd.; Husky Injection Molding Systems Ltd.; Kuraray Co., Ltd.; Mitsubishi Chemical Corporation; Mitsui Chemicals, Inc.; Nagase & Company, Ltd.; Sumitomo Chemical Company, Limited; Sumitomo Osaka Cement Co., Ltd.; Taiheiyo Cement Corporation.

Chronology

• Key Dates:

• 1897: Okinoyama Coal Mine is established.
• 1914: Ube Shinkawa Iron Works is founded.
• 1923: Ube Cement Production, Ltd. is formed.
• 1933: Ube Nitrogen Industry, Ltd. begins operations.
• 1942: The above four companies are amalgamated to form Ube Industries, Ltd.
• 1944: Company purchases an anthracite mine at Sanyo.
• 1955: Company branches into the production of urea and caprolactam, raw materials for nylon.
• 1964: Production of polyethylene begins.
• 1967: The Okinoyama mine is closed.
• 1970: The Sanyo anthracite mine is shut down.
• 1984: Company enters the pharmaceutical field through venture with Takeda Chemical.
• 1986: Ube and Marubeni form ATC, a joint venture to produce polypropylene compounds for bumpers and dashboards.
• 1989: Ube establishes A-Mold Corp. as a U.S. manufacturer of aluminum wheels.
• 1992: Ube Machinery, Inc. is formed in the United States to manufacture injection-molding and die-casting machines.
• 1993: Joint venture Thai Caprolactam Public Co., Ltd. is established.
• 1994: Company gains full control of Productos Quimicos del Mediterraneo, S.A., a Spanish producer of caprolactam.
• 1995: Ube and Mitsui Petrochemical Industries merge their polypropylene businesses into a joint venture, Grand Polymer Co., Ltd.
• 1997: Ube and Mitsubishi Materials form a joint venture, Ube-Mitsubishi Cement, to merge the cement-related marketing and logistics operations of the two firms.